It is becoming increasingly clear that Obama's proposed policies go well beyond what we might need just to respond to the economic crisis; he's making a bid for great changes in national policy. The Democrats do now control the U.S. presidency and both houses of Congress, but usually that wouldn't be enough to think they could get away with this; they would fear a public backlash at the next election. So they must think the public is now more receptive to Democrat-style large policy changes. I don't know that they are wrong, but this does raise the question: if so, what does the public think has changed?
historical reductions or limitations in government, crisis or not:
fall of the USSRwelfare reform (maybe)term limitsend of Prohibitionshrunk militariesCalifornia's Prop 13bills of rights
Assurance contracts are interest; I swung from libertarian/semi-anarcho-capitalist to social democrat largely on the problems of externalities and public goods. Though also on concentration of wealth, and the fact that modern Westerners seem unwilling to just let people die at the point of need of food or health care, and that reluctance undermines exclusionary social insurance in those goods. Still, demonstrating assurance contracts working at large scales would help reduce the scope of government action.
I can think of one striking example - after Hurricane Katrina the New Orleans education system was rebuilt with a strong reliance on charter schools, as well as a smaller scale voucher program. In this instance, a terribly corrupt and underperforming govenmental institution (Orleans Parish School Board) was dismantaled in the wake of a crisis.
Who, with any widespread credibility, can say that anything being done isn't being done because of the 'crisis'? The US has entered a political 'happy death spiral' where anything is possible as long as it's a plausible response to the 'crisis'. The real crisis is that there are now no clear rules, only jockeying for position at court.
I think this all makes sense if you think of the vast majority of people as very uncritical thinkers who cling to any ideas they naively think they understand.
Such ideas have been dubbed "conventional wisdom" by Galbraith. Part of the conventional wisdom of many Americans has involved notions like "smaller government is better than bigger government" and "freer markets are better than regulation."
Suppose most Americans substitute thoughtfulness for blind adherence to such generalities. But the present financial crisis has made clear -- even to a very thoughtless person -- that such generalities aren't always true. Clearly at least some times regulation helps (if for example it prevents bad mortgages and/or banks taking on too much risk) and at least some times bigger government is better (if for example it prevents depositors from losing all their money when a bank fails).
To a person who has always been critical and thoughtful, the lessons learned from the present crisis might be relatively subtle. But to a thoughtless person with the above accepted wisdom, this produces huge cracks in their worldview. And because such a person isn't very critical or thoughtful, they're likely to rather blindly accept the next bit of imparted 'wisdom' that makes sense of the world to them.
I think for many people, Obama has successfully filled the cracks in the old conventional wisdom with a new narrative. He has been so successful in part because of circumstance -- being the focus of attention of an uncritical audience at just the right time -- in part because of his intelligence, eloquence, and charisma -- which make him a more compelling advocate for those who put at least a modicum of thought into their beliefs -- and in part because he has been shrewd in his approach to policy so far, at least giving the appearance of bipartisanship and honest concern, and thus presenting himself as trustworthy.
And so, I think what "changed" was just that a major event caused people to consider that their accepted wisdom was wrong, and the political discourse at the time was dominated by a different voice than the one that dominated whenever they adopted their previous worldview.
denis bider, Bryan Caplan disagrees on the American revolution (which I don't even think was caused by any sort of crisis). Also, I thougth Switzerland has been around since the middle ages, what oppressive government did it split off from?
Grant: They could have started from having sane amount of leverage.
Juan Enriquez claims in the beginning of this Ted Talk that while commercial banks have an average of 9x leverage and investment banks 15-20x leverage, Bank of America had 32x and Citibank 47x leverages.
For insurance companies, common leverages leverages are little bit lower. In 2007 Berkshire Hathaway and Montpelier had 2x leverage. Markel, Travelers, White Mountains and Chubb had 4x leverage. AIG had 11x leverage.
I am surprised that no one mentioned that there is a type of crisis that will induce a widespread libertarian response. It is the sort of crisis that led to the creation of Switzerland or the United States. It involves the public perception of an oppressive, exploitative government.
As long as the public does not perceive the government as oppressive and exploitative overall, however, the drive towards totalitarianism is strong, because people in general are weak, and need external frameworks to cling to.
Sorry if this has been said, but it seems obvious to me that the more likely explanation is that the things above and beyond response to the crisis are things that a democratic candidate would have liked to do anyway, with or without a crisis, and the fact that a lot of it is actually getting done is because crises give the person in power more political capital to actually do things.
Ian C. can you point to a time period post 1920's in which the U.S. government hasn't used a "crisis" as justification for broad action?The american people still have libertarian leanings that politicians must overcome, otherwise they wouldn't need to bother with the rhetoric.what you're describing as a failure mode has become the norm: push for change during a crisis that will have effects that extend far beyond the crisis. By the time the crisis is over everyone will forget all about it, relieved to be out of the mess.
I just thought it odd that such a critique would appear right when Robin wrote the most obviously political post in a while. I am frustrated by political discussion because I feel that one should be able to point at various arguments for and against various positions without being accused of supporting all arguments supporting that position.So when Robin points to an argument by someone like Caplan I think he is assuming the reader also understands this. I don't believe Robin is hiding justification for anything, he is pointing to the justification of others.
but sure: Robin doesn't fill his posts with links to other essays in order to make compound points. I enjoy Eliezer's style more too. But that has nothing to do with the validity of Robin's posts. You just have to work a little harder if you want to justify them to yourself.
I don't see any contradiction between being a Libertarian and supporting government action in this instance. A crisis is by definition a time when the normal rules don't apply.
By the same token of course, you can't use a crisis - an exceptional event - to justify changes in day to day policies. There would have to be ongoing problems to justify ongoing changes.
@nazgulnarsil: You would be right if we were talking about a specific case of regulation vs. free market thinking, and I hope I don't try to stand above the fray in any specific case. My comment regarding "obviously wrong" was about the ideological case for regulation or free market thinking as The Solution. I do not see a need to defend my argument that anyone arguing for one or the other regardless of circumstances is not to be taken seriously. But that's only tangential to my complaint about Robin, which is actually that he writes so tersely, leaves out so much of his thinking, that it often seems that he is hiding a free-market ideology which I don't think he actually has.
An example of this is that he keeps saying that this recession is equivalent to all prior recessions and will get better, without ever supporting that claim. This is not obvious to the rest of us, and so feels more like an ideological Republican's statement or talking point than an actual argument. Debt, unemployment, and mortgage failures have all massively exceeded any recent recession.
T L Holaday: they could have picked Ron Paul or Dennis Kucinich in the primaries, who were far more anti-torture and anti-war, and in the case of RP, far more anti-government. Nor was it overwhelming in terms of numbers - the popular vote was a close run thing. Obama is just an awfully skilled strategic player.
Robin: all the Libertarian gains in the 20th and early 21st centuries, in terms of open borders and un-intrusive economic policy, were all the product of peace and increasing interdependence, not of strife. This seems to be a repeated pattern - liberty loses when the world goes to war (against anything, including abstracts such as poverty, drugs, and economic depressions).
I was referring to the financial mechanism of insurance, not the firms as they currently exist. AIG has every incentive to fix the current crisis, if they could, but I don't believe their business model includes actually preventing claims. I'm saying maybe it should? I really don't know anything about AIG, but if they didn't know of the incoming disaster until it was too late to do anything about it, then there would be nothing they could do.
As an example, at least one fire insurer in California deployed private firefighters to keep from having to pay out claims.
Another good example might have been Katrina. If only private flood insurance was available, might the insurers have tried to fix the levees? They'd have the incentive, the knowledge and the funding (equal to how much residents were willing to pay to be free from flood risk) to do so.
More generally, an insurer pays $X to receive payout Y if event A occurs. In a dominant assurance game funding some public good that aims to stop A, a participant pays $X for event A not to occur, and receives a payout Y if the event does occur. The goal of insurance and assurance games are very different (one is purchased to offload risk, the other to fund public goods), but the mechanism seems very similar to me.
Or put more simply, I think systemic risk is a private good to insurers.
It's quite obvious that the decline will continue as long as the mortgage banks and investment banks remain intact, supported by government dollars.
What is needed, for starters, is write-down of bad mortgages and government cancellation of all CD swaps that do not involve parties with interest. Until both are done, the credit market will remain stuck.
historical reductions or limitations in government, crisis or not:
fall of the USSRwelfare reform (maybe)term limitsend of Prohibitionshrunk militariesCalifornia's Prop 13bills of rights
Assurance contracts are interest; I swung from libertarian/semi-anarcho-capitalist to social democrat largely on the problems of externalities and public goods. Though also on concentration of wealth, and the fact that modern Westerners seem unwilling to just let people die at the point of need of food or health care, and that reluctance undermines exclusionary social insurance in those goods. Still, demonstrating assurance contracts working at large scales would help reduce the scope of government action.
I can think of one striking example - after Hurricane Katrina the New Orleans education system was rebuilt with a strong reliance on charter schools, as well as a smaller scale voucher program. In this instance, a terribly corrupt and underperforming govenmental institution (Orleans Parish School Board) was dismantaled in the wake of a crisis.
Take care,
Cormac
Who, with any widespread credibility, can say that anything being done isn't being done because of the 'crisis'? The US has entered a political 'happy death spiral' where anything is possible as long as it's a plausible response to the 'crisis'. The real crisis is that there are now no clear rules, only jockeying for position at court.
I think this all makes sense if you think of the vast majority of people as very uncritical thinkers who cling to any ideas they naively think they understand.
Such ideas have been dubbed "conventional wisdom" by Galbraith. Part of the conventional wisdom of many Americans has involved notions like "smaller government is better than bigger government" and "freer markets are better than regulation."
Suppose most Americans substitute thoughtfulness for blind adherence to such generalities. But the present financial crisis has made clear -- even to a very thoughtless person -- that such generalities aren't always true. Clearly at least some times regulation helps (if for example it prevents bad mortgages and/or banks taking on too much risk) and at least some times bigger government is better (if for example it prevents depositors from losing all their money when a bank fails).
To a person who has always been critical and thoughtful, the lessons learned from the present crisis might be relatively subtle. But to a thoughtless person with the above accepted wisdom, this produces huge cracks in their worldview. And because such a person isn't very critical or thoughtful, they're likely to rather blindly accept the next bit of imparted 'wisdom' that makes sense of the world to them.
I think for many people, Obama has successfully filled the cracks in the old conventional wisdom with a new narrative. He has been so successful in part because of circumstance -- being the focus of attention of an uncritical audience at just the right time -- in part because of his intelligence, eloquence, and charisma -- which make him a more compelling advocate for those who put at least a modicum of thought into their beliefs -- and in part because he has been shrewd in his approach to policy so far, at least giving the appearance of bipartisanship and honest concern, and thus presenting himself as trustworthy.
And so, I think what "changed" was just that a major event caused people to consider that their accepted wisdom was wrong, and the political discourse at the time was dominated by a different voice than the one that dominated whenever they adopted their previous worldview.
denis bider, Bryan Caplan disagrees on the American revolution (which I don't even think was caused by any sort of crisis). Also, I thougth Switzerland has been around since the middle ages, what oppressive government did it split off from?
Grant: They could have started from having sane amount of leverage.
Juan Enriquez claims in the beginning of this Ted Talk that while commercial banks have an average of 9x leverage and investment banks 15-20x leverage, Bank of America had 32x and Citibank 47x leverages.
For insurance companies, common leverages leverages are little bit lower. In 2007 Berkshire Hathaway and Montpelier had 2x leverage. Markel, Travelers, White Mountains and Chubb had 4x leverage. AIG had 11x leverage.
I am surprised that no one mentioned that there is a type of crisis that will induce a widespread libertarian response. It is the sort of crisis that led to the creation of Switzerland or the United States. It involves the public perception of an oppressive, exploitative government.
As long as the public does not perceive the government as oppressive and exploitative overall, however, the drive towards totalitarianism is strong, because people in general are weak, and need external frameworks to cling to.
Sorry if this has been said, but it seems obvious to me that the more likely explanation is that the things above and beyond response to the crisis are things that a democratic candidate would have liked to do anyway, with or without a crisis, and the fact that a lot of it is actually getting done is because crises give the person in power more political capital to actually do things.
nazgulnarsil: It takes away from the later points if the premises are assumed when they're clearly controversial.
Ian C. can you point to a time period post 1920's in which the U.S. government hasn't used a "crisis" as justification for broad action?The american people still have libertarian leanings that politicians must overcome, otherwise they wouldn't need to bother with the rhetoric.what you're describing as a failure mode has become the norm: push for change during a crisis that will have effects that extend far beyond the crisis. By the time the crisis is over everyone will forget all about it, relieved to be out of the mess.
I just thought it odd that such a critique would appear right when Robin wrote the most obviously political post in a while. I am frustrated by political discussion because I feel that one should be able to point at various arguments for and against various positions without being accused of supporting all arguments supporting that position.So when Robin points to an argument by someone like Caplan I think he is assuming the reader also understands this. I don't believe Robin is hiding justification for anything, he is pointing to the justification of others.
but sure: Robin doesn't fill his posts with links to other essays in order to make compound points. I enjoy Eliezer's style more too. But that has nothing to do with the validity of Robin's posts. You just have to work a little harder if you want to justify them to yourself.
I don't see any contradiction between being a Libertarian and supporting government action in this instance. A crisis is by definition a time when the normal rules don't apply.
By the same token of course, you can't use a crisis - an exceptional event - to justify changes in day to day policies. There would have to be ongoing problems to justify ongoing changes.
@nazgulnarsil: You would be right if we were talking about a specific case of regulation vs. free market thinking, and I hope I don't try to stand above the fray in any specific case. My comment regarding "obviously wrong" was about the ideological case for regulation or free market thinking as The Solution. I do not see a need to defend my argument that anyone arguing for one or the other regardless of circumstances is not to be taken seriously. But that's only tangential to my complaint about Robin, which is actually that he writes so tersely, leaves out so much of his thinking, that it often seems that he is hiding a free-market ideology which I don't think he actually has.
An example of this is that he keeps saying that this recession is equivalent to all prior recessions and will get better, without ever supporting that claim. This is not obvious to the rest of us, and so feels more like an ideological Republican's statement or talking point than an actual argument. Debt, unemployment, and mortgage failures have all massively exceeded any recent recession.
T L Holaday: they could have picked Ron Paul or Dennis Kucinich in the primaries, who were far more anti-torture and anti-war, and in the case of RP, far more anti-government. Nor was it overwhelming in terms of numbers - the popular vote was a close run thing. Obama is just an awfully skilled strategic player.
Robin: all the Libertarian gains in the 20th and early 21st centuries, in terms of open borders and un-intrusive economic policy, were all the product of peace and increasing interdependence, not of strife. This seems to be a repeated pattern - liberty loses when the world goes to war (against anything, including abstracts such as poverty, drugs, and economic depressions).
frelkins,
I was referring to the financial mechanism of insurance, not the firms as they currently exist. AIG has every incentive to fix the current crisis, if they could, but I don't believe their business model includes actually preventing claims. I'm saying maybe it should? I really don't know anything about AIG, but if they didn't know of the incoming disaster until it was too late to do anything about it, then there would be nothing they could do.
As an example, at least one fire insurer in California deployed private firefighters to keep from having to pay out claims.
Another good example might have been Katrina. If only private flood insurance was available, might the insurers have tried to fix the levees? They'd have the incentive, the knowledge and the funding (equal to how much residents were willing to pay to be free from flood risk) to do so.
More generally, an insurer pays $X to receive payout Y if event A occurs. In a dominant assurance game funding some public good that aims to stop A, a participant pays $X for event A not to occur, and receives a payout Y if the event does occur. The goal of insurance and assurance games are very different (one is purchased to offload risk, the other to fund public goods), but the mechanism seems very similar to me.
Or put more simply, I think systemic risk is a private good to insurers.
It's quite obvious that the decline will continue as long as the mortgage banks and investment banks remain intact, supported by government dollars.
What is needed, for starters, is write-down of bad mortgages and government cancellation of all CD swaps that do not involve parties with interest. Until both are done, the credit market will remain stuck.